Funds of funds portfolio composition and its impact on the performance: evidence from the Italian market

Funds of Funds (FoF) are particular investment funds that invest resources in some mutual funds. This type of funds offers the possibility to achieve an higher diversification that an investor can’t realize using other instruments. One of the main differences among FoFs available is the strategy adopted by the manager to select the investment funds to include in the portfolio and the number of funds included in the portfolio. The funds’ selection could be naïf or based on some aspect related to the funds‘ history as the past performance achieved, the fund’s investment style or the manager’s reputation. This paper analyses FoF’s Italian market and verifies whether the performance is influenced by either the diversification strategy or the number of funds included in the portfolio. The analysis demonstrates that FoFs’ best performers are those which are less geographically or sectorially concentrated; there are significant differences following different criteria/constraints applied in the funds’ selection.